Central Grant, Fiscal Equalization and Politics

Le rôle politique de la dotation globale de fonctionnement

Touria Jaaidane and Sophie Larribeau ()

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Abstract: In the need of budgetary discipline at the local level, French authorities rely on inter-municipal cooperation to foster rationalization in spending and recently on cuttings in the central grant that municipalities receive. As the central grant is also a vertical equalizing transfer, we are interested in its effectiveness taking into account a horizontal equalization fund defined at the consolidated level (municipalities and the inter-municipal body they belong to). Our main empirical results, using a large panel dataset of French municipalities with more than 1,000 inhabitants over the very recent period 2018-2023, are twofold. First, the equalization of tax capacities is operated mainly through vertical transfer, as compared to the horizontal scheme whose performance is modest. We also find a number of dysfunctions in the equalization schemes, undermining its effectiveness. Second, we show that local politics comes into play and introduces partisanship in the allocation of the vertical transfer, despite its formula-based definition.

Keywords: Local governments; Inter-governmental transfers; Fiscal equalization; Politics Regression; Discontinuity Design (search for similar items in EconPapers)
Date: 2024
Note: View the original document on HAL open archive server: https://hal.science/hal-04615808
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Published in Revue d'économie politique, 2024, 134 (1), pp.11-47. ⟨10.3917/redp.341.0011⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04615808

DOI: 10.3917/redp.341.0011

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